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60% investor LVRs in NZ

Discussion in 'Property Finance' started by VB King, 21st Jul, 2016.

  1. VB King

    VB King Well-Known Member

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  2. ellejay

    ellejay Well-Known Member

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    That's why I like a lower LVR than most, and paying off debt. Things come up that you can't control. Seen it in Europe and over here. My LVR in NZ is below this number so buying is about to get easier for me while the over leveraged and neg geared are stuck.
     
  3. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    Definitely. If that happened here I reckon Sydney's middle value market would come to a standstill. I reckon Sydney's upper and the lowest quartiles may stay relatively unscathed. But the middle... middle market buyers with smaller deposits saved up will no longer be able to buy the classic median 1 mill house here if a 60/70% LVR was required.

    On the other hand, I think Hobart, Adelaide, and the majority of Brisbane will benefit because they are still completely affordable. (Well, "affordable" to anybody from Melbourne or Sydney, that is!)
     
    Last edited: 21st Jul, 2016
  4. VB King

    VB King Well-Known Member

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    Sure, I've got one on the market right now, spoke with the agent this morning and asked about any interest from investors ... This change is sudden ... Investors have been stopped in their tracks.
     
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  5. ellejay

    ellejay Well-Known Member

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    The difficulty is that if you're holding negatively geared ips, and the heat is taken right out of the market because there are very few buyers then you may struggle to hold on to your portfolio. You may be looking at negative equity. Hence when this happens not only first time buyers but also many investors can't get a deposit together. You can't refinance, you're stuck = market correction. Not meaning to be the bearer of bad news but it can happen anywhere. The balance of your finances and portfolio will mean the difference between financial disaster, just being stuck or being in a position to jump in and buy cheaper property.
     
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  6. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    Rents shouldn't suddenly fall though. And anybody in way over their heads on negatively geared property... it would be a severe lesson, i'm afraid.
     
  7. ellejay

    ellejay Well-Known Member

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    Exactly, I don't have an issue with it to be honest. The market is crazy with people buying anything because of FOMO, no dd, no inspections. Total domino effect with no hope of wages catching up with the increases.
     
  8. ellejay

    ellejay Well-Known Member

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    Plenty of evidence of softening rents because of over supply of rentals. I didn't realise you knew the NZ market?
     
  9. ellejay

    ellejay Well-Known Member

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    Hobart, Adelaide and Brisbane wouldn't do well though if the majority of investors were stuck because they don't have cash for the deposit and can't refinance at 60%LVR. I think there may be more of this to come so good to have a heads up and be prepared. This has happened virtually overnight so there hasn't been time for investors to work out what they need to do or sell off.
     
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  10. VB King

    VB King Well-Known Member

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    Luck - or good planning - mine has OO appeal. Just looking to cash something out.

    The purpose of the thread - this has got the potential to be devastating for someone in over their heads. As pointed out above.

    This has a far greater and sudden impact than say ... an end to neg gearing.
     
  11. ellejay

    ellejay Well-Known Member

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    Exactly, at least investors over here can look at this and take the warning to sort out their lvr, debtlevels and cash flow before someone else does it for them. Great if you can appeal to OOs. You may do well anyway if you get one of the lucky investors who's got pre approval that will be honored by the bank.
     
  12. VB King

    VB King Well-Known Member

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    I hear while the banks are making the LVR move straight away, they are honoring pre approvals.

    Your point on being prepared is the key here, this is a warning - things can change very suddenly.
     
  13. tobe

    tobe Well-Known Member

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    I didn't think they had negative gearing in NZ? (or stamp duty, CGT etc) Do you mean negative cash-flow properties?

    If banks are going to enforce this for investors deleveraging, its going to be paid ful. Holding 4 properties at 70%, try to offload one and bank says not only do you need to use the proceeds to pay down debt, we aren't letting go of the mortgage until you tip in some more cash......
     
  14. VB King

    VB King Well-Known Member

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    Hi was comparing this policy change to the much talked about potential change to neg gearing in Australia.

    You are correct in saying no stamp duty, CGT. Neg gearing was certainly allowed when I lived there (>7 yrs ago) - I haven't kept up as my position isn't negative, could have changed.

    The SD & CGT positions make NZ fairly attractive. However other transaction costs (commissions) are a bit higher & I treat as "regional".
     
  15. 2FAST4U

    2FAST4U Well-Known Member

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    Perth is a classic example.
    60% LVR would be a dramatic change to the landscape of Australian real estate.
     
  16. Redom

    Redom Mortgage Broker Business Member

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    Wow that is steep. Thanks for sharing. :)

    I don't think its something thats seriously on the table (LVR restrictions) in Australia at the moment, but the two set of regulators do share similar viewpoints/ideologoies when setting policy. NZ does have a greater proportion of loans at higher LVR's than Aus, so a cap like this will directly target that. If you fast forward 5-10 years and higher LVR loans start becoming a significantly increasing share of total loans, than it does give some indication of what regulators could do (60% is incredibly extreme though!).
     
  17. euro73

    euro73 Well-Known Member Business Member

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    It's the decade to deleverage. All the signs are there.
     
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  18. albanga

    albanga Well-Known Member

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    What would be your ideal LVR on your portfolio?
     
  19. euro73

    euro73 Well-Known Member Business Member

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    It's not specifically about LVR, really. It's about reducing debt to a point where you can improve servicing, withstand a financial calamity, deal with a requirement to move from I/O to P&I etc...

    Remember- a lower LVR can be the result of either debt reduction (deleveraging) or it can be the result of growth where there has been no debt reduction..... and the latter doesnt improve borrowing capacity. Less debt does, though.

    Mr Brown buys a 500K property, pays no debt down and it grows in value to to 750K 10 years later.

    Mrs Blue buys a 500K property, pays down 100K of debt and it grows in value to 650K 10 years later.

    Both have 250K of equity. Both earn the same income. Both have the same # of dependents. Both have the same credit card limits etc...

    Which of them has the better borrowing capacity, and therefore the better chance of being able to purchase again, or refinance or restructure if a problem came along etc?

    This is why I have long advocated the need to pay down any non deductible debt as fast as possible...whether that be a mortgage on your PPOR, credit card debt, personal loans, HECS... whatever..... and then start paying down deductible debt .... and my preferred vehicle to achieve that faster than would ordinarily be possible using conventional property strategies and the less than stellar cash flow they produce, has been NRAS. But dual occupancy , granny flats etc could also be quite useful... and for those with the sufficient capacity or appetite, commercial could be useful as well.

    I have favoured NRAS to do the job simply because it has allowed me to achieve these outcomes using conventional resi lending and LVR's, and the outcomes arent able to be replicated by other strategies, typically.

    1. I can reduce my taxable income more than with conventional property strategies because of the larger pre tax losses associated with properties rented out 20% cheaper.

    2. I can simultaneously increase after tax income because of the 11K + of tax free NRAS credits I receive in addition to neg gearing.

    In effect, I get a heavily negatively geared outcome as well as a heavily CF+ outcome, at the same time. ... and that results in a superior amount of cash flow being at my disposal.

    3. I can then redepoly/reinvest those tax free surpluses towards making extra repayments against debt that is doing nothing for me but create an impediment to expanding my portfolio

    4. I can do it all with $0 out of my pocket.


    But whatever your circumstance, whether you like NRAS or dual occ or commercial... hoping APRA or ASIC are going to let the banks go back to actuals and unlimited I/O lending any time soon, is not going to serve you well... thinking you can replicate the successes of previous generations of ( pre APRA) investors is flat out foolish. They grew within an expansive credit environment quite deliberately geared ( excuse the pun) around lending them (and everyone else) as much money as possible , on increasingly favourable terms, with multiples eventually exceeding 15 times income or greater.... and now that's run it's course. Year 1 maths should allow anyone to appreciate that for the game changer it is... there are now real, finite limits that are not flexible, not likely to expand, and to beat them - which you must do, eventually, if you wish to grow - you must approach cash flow management far more seriously. Which brings us full circle to the original statement I made on a previous post - this is the decade to deleverage
     
    Last edited: 22nd Jul, 2016
  20. HD_ACE

    HD_ACE Game-Changer Premium Member

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    Both have the same chance???

    Because Mr brown has put the same 100k into his offset account instead of paying down the loan, His asset is now 100k more in value. To purchase again, Mr brown could pay down his existing loan to improve servicing, or borrow less for the next loan.

    Mr Brown all day long.
     
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